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holding that where plaintiffs alleged the years of the misrepresentations, along with the occurrence of the fraudulent scheme, they sufficiently set forth a time period in which the alleged misrepresentations took place
Summary of this case from Republic Services, Inc. v. Liberty Mutual Insurance, CompanyOpinion
Case No. 99-CV-74014-DT
August 1, 2001
MEMORANDUM OPINION AND ORDER
I. FACTS
Plaintiffs allege that Defendant James Fredal held himself out as a financial advisor and employee benefits advisor and devised two schemes known as the "Performance Fund" and the "Ponzi Scheme" to defraud Plaintiffs of over $500,000.00. James Fredal allegedly advised Kukuk, Schaeffer and Dobsons to invest in a "Performance Fund" which allegedly was a bogus, fraudulent enterprise. It is alleged that while James Fredal knew it was a sham business. Plaintiffs claim Defendant Kathy Fredal (James Fredal's wife), and Fredal Associates conspired with James Fredal to defraud Plaintiffs of the money. Kathy Lynn Fredal was named as an accessory. In the Ponzi scheme, James Fredal falsely told Plaintiffs that their money would be invested in a money market or other conservative accounts, but instead used the money to buy a house. Plaintiffs brought the following causes of action: Count I-Rico 18 U.S.C. § 1962(a); Count II — Rico 18 U.S.C. § 1962(b); Count III-Rico 18 U.S.C. § 1962(c); Count IV-Securities and Exchange Act Section 10(b), Rule 10b-5; Count V-Common Law Fraud; Count VI-Statutory Conversion; Count VII-Common Law Conversion; Count VIII-Professional Malpractice. Plaintiffs generally seek an unspecified amount of damages (except for Count IV which requests $172,000.00), treble damages, attorney fees, costs, and pre-judgment interest.
On April 24, 2000, Kathy Lynn Fredal filed for bankruptcy. On April 24, 2000, a Motion for Default Judgment was filed by Plaintiffs against Defendants. The motion was denied and Defendant James Fredal was ordered to appear for deposition within 30 days. James Fredal appeared for deposition on May 24, 2000. On August 23, 2000, Plaintiffs filed a Motion to Amend Pleading seeking to name Blair O'Connor (hereinafter "O'Connor") as a defendant in place of the unknown "John Doe" Defendant. On September 22, 2000, a default judgment was entered against James Fredal. On March 29, 2001, this Court entered a Memorandum Opinion and Order granting Plaintiffs' Motion to Amend the Complaint to add Blair O'Connor as a Defendant On April 27, 2001, Defendant O'Connor filed a Motion to Dismiss which is now before the Court. Having reviewed the motions and briefs, the Court is ready to rule.
II. STANDARD OF REVIEW
Rule 12(b)(6) provides for a motion to dismiss for failure to state a claim upon which relief can be granted. This type of motion tests the legal sufficiency of the plaintiff's Complaint. Davey v. Tomlinson, 627 F. Supp. 1458, 1463 (E.D. Mich. 1986). In evaluating the propriety of dismissal under Rule 12(b)(6), the factual allegations in the Complaint must be treated as true. Janan v. Trammell, 785 F.2d 557, 558 (6th Cir. 1986). If matters outside the pleading are presented in a Rule 12(b)(6) motion, the motion shall be treated as one for summary judgment under Rule 56(b) and disposed of as provided in Rule 56.
Rule 56(c) provides that summary judgment should be entered only where "the pleadings, depositions, answers to the interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The presence of factual disputes will preclude granting of summary judgment only if' the disputes are genuine and concern material facts. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986). A dispute about a material fact is "genuine" only if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id Although the Court must view the motion in the light most favorable to the nonmoving party, where "the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); Celotex Corp. v. Catreti, 477 U.S. 317, 323-24 (1986). Summary judgment must be entered against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. In such a situation, there can be "no genuine issue as to any material fact," since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial. Celotex Corp., 477 U.S. at 322-23. A court must look to the substantive law to identify which facts are material. Anderson, 477 U.S. at 248.
III. ANALYSIS
A. Failure to Plead a RICO Claim 1. Pleading with Specificity Under FED.R.CIV.P. 9(b) .
Defendant O'Connor contends that Plaintiffs have failed to plead fraud with particularity. Defendant O'Connor relies on Coffey v. Foamex, 2 F.3d 157, 262 (6th Cir. 1993) in contending that Plaintiffs must plead averments of time, place and context of the alleged misrepresentations and the injury resulting. Defendant O'Connor asserts that the Coffey standard applies to each allegation of fraud. It is Defendant O'Connor's contention that Plaintiffs must state with particularity the false statements of fact made by the Defendant which the Plaintiffs relied on and the facts showing Plaintiffs' reliance. Blount Financial Serv., Inc. v. Walter D. Heller and Co., 819 F.2d 151, 152 (6th Cir. 1987). Defendant O'Connor asserts that sufficient facts must be pled in which Plaintiffs specify the identity of the person making the representation from which fraudulent intent can be inferred. DeLorean v. Cork Fully, 118 B.R. 932, 940 (E.D. Mich. 1990); Blount Financial Sery., Inc., 819 F.2d at 151. Defendant O'Connor contends that Plaintiffs must state with particularity the role of each individual defendant. Defendant cites Benoay v. Decker, 517 F. Supp. 490, 492 (R.D. Mich. 1991 ) aff'd 735 F.2d 1363 (6th Cir. 1984) which states:
[E]ach individual defendant must be apprised separately of the specific acts of which he is accused, especially in a case involving multiple defendants. . . . The complaint, therefore, may not rely upon blanket references to acts or omissions by all of the "defendants" for each defendant named in the complaint is entitled to be apprised of dthe circumstances surrounding the fraudulent conduct with which he individually stands charged.
* * *
[M]ere general allegations that there was fraud, corruption or conspiracy or characterizations of acts or conduct in these terms are not enough, no matter how frequently repeated. Nor do statements of "malice, intent knowledge, or other conditions of mind" in general terms under the last sentence of Rule 9(b) substitute for particularization of the circumstances constituting the fraud charged. [Citations and quotation marks omitted].Id at 493.
Defendant O'Connor contends that Fed.R.Civ.P. 9(b) is strictly enforced and given heightened consideration in securities fraud and RICO cases. Arena Land Investment Co. Inc., v. Petty, 906 F. Supp. 1470 (D. Utah 1994); Berent v. Kemper Corp., 780 F. Supp. 431, 447-49 (RD. Mich. 1991), aff'd 973 F.2d 1291 (6th Cir. 1992). Defendant O'Connor contends that Plaintiffs must identify particular Defendants with whom they dealt directly, from whom they purchased stocks, and Plaintiffs must identify which Defendants made affirmative statements. Defendant O'Connor states that each defendant must be apprised of specific facts of which he is accused. Plaintiffs may not rely on blank references to acts or omissions.
A. Time and Place of Misrepresentation.
Defendant O'Connor contends that the second amended Complaint lacks information regarding the place of alleged misrepresentations and any references to the time of the alleged misrepresentations are vague. Defendant O'Connor points to the following allegations:not not not
ALLEGATIONS ¶ no. ALLEGATIONS FAILS "In October and November, 1996, 25 Allegation does not state the date or place meetings the Dobsons and Kukuk's daughter (Further, the allegation is directed at Defendant Joyce of Kraatz, met with J. Fredal James Fredal, Defendant O'Connor.) to discuss investing monies. During these meetings . . ." "At approximately the same time, J. 26 Allegation does not state the date or place of the Fredal met Plaintiffs Sorge and the meetings. (Further, the allegation is directed at Thompsons . . ." Defendant James Fredal Defendant O'Connor.) "In the course of discussing their 28 Allegation does not state the date or investment . . ." place of the meetings. "Acting on J. Fredal's representation 31, Allegation does not state the time and that the "Performance Fund' was safe, 34 place of the representation. (Further, 'insured' and 'guaranteed;' plaintiffs the allegation is directed at Defendant turned over to J. Fredal and Fredal James Fredal Defendant Associates . . ." O'Connor.) Defendant O'Connor states that dates stated in the Complaint do not relate to dates of any particular misrepresentation to Defendant O'Connor.B. Content and Identity of Misrepresentations.
Defendant O'Connor states that Plaintiffs do not specifically identify any misrepresentations made by Defendant O'Connor. Defendant O'Connor contends that the Complaint only alleges that he was a promotor of the Performance Fund and procured money on behalf of the Performance Fund. It is Defendant O'Connor's contention that James Fredal was the person who solicited funds from Plaintiffs and not Defendant. Defendant O'Connor states that the Complaint does not allege that he made any misrepresentations to any of the Plaintiffs. It is Defendant O'Connor's contention that he had no contact with the Plaintiffs whatsoever and the Complaint fails to tie the specific investments to him.
C. Failure to Plead Sufficient Acts of Wire and Mail Fraud.
Defendant O'Connor contends that the Complaint fails to plead particular acts which constitute wire fraud or mail fraud. Defendant O'Connor cites Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1328 (7th Cir. 1994) in which the court stated that a plaintiff must, within reason, "describe the time, place and content of the mail and wire fraud communications and must identify the parties to the communications." Defendant O'Connor contends that there is not one single specific allegation in the Complaint with respect to any communication by Defendant using the mail or wire communications.
Defendant O'Connor contends that Plaintiffs' only allegation is contained in Paragraph 66 and states:
Defendants acquired or maintained, directly or indirectly, an interest in the enterprises through a pattern of racketeering activity, as defined by 18 U.S.C. § 1961(1) and 1961(5), by use of the U.S. mail to send fictitious and fraudulent communications to plaintiffs. Such use occurred on more than two occasions, and was fraudulent in violation of 18 U.S.C. §§ 1341, 1343 and 1962.
Defendant O'Connor contends that Plaintiffs' allegations are conclusory and boilerplate failing to describe specific misrepresentations constituting wire and mail fraud.
Plaintiffs respond that they have identified specific time frames in which Defendant O'Connor made representations regarding the investment funds to induce Plaintiffs to entrust Defendants with funds. Plaintiffs assert that this Court has stated that this Court has acknowledged that the Plaintiffs have pled sufficient allegations to satisfy the mandate of Fed.R.Civ.P 9(b). Plaintiffs state that the following allegations from the Complaint satisfy Fed.R.Civ.P.9(b):
Paragraph 31: In November, 1996, J. Fredal, K. Fredal, Blair O'Connor and Fredal Associates acted as co-conspirators, promoters, brokers, dealers, and/or agents for the "Performance Fund" and procured on its behalf the sum of $136,261.65 from plaintiff Virginia Dobson for the purchase of a "Performance Fund III Series A Capital Appreciation Bond."
Paragraph 32: In December, 1996, J. Fredal, K. Fredal, Blair O'Connor, and Fredal Associates acted as co-conspirators, promoters, brokers, dealers, and/or agents for the "Performance Fund" and procured on its behalf the sum of $5,600 from plaintiff Virginia Dobson for the purchase of a "Performance Fund III Series A Capital Appreciation Bond."
Paragraph 33: Sometime between October 7, 1996 and January 10, 1997, J. Fredal forged the signature of plaintiff Gertrude Kukuk on documents directing Beneficial Standard Life Insurance Company to return the $10,000 that plaintiff Kukuk believed had been used to purchase an insurance annuity. Instead, defendants J. Fredal, K. Fredal, Blair O'Connor, and Fredal Associates acting as co-conspirators, promoters, brokers, dealers and/or agents for the "Performance Fund" wholly without authorization purchased a "Performance Fund III Series A Capital Appreciation Bond" in the amount of $10,000 on behalf of Gertrude Kukuk. A certificate of the alleged bond was issued in favor of Gertrude Kukuk dated January 10, 1997.
Paragraph 34: In December, 1996, J. Fredal, K. Fredal, Blair O'Connor and Fredal Associates acted as co-conspirators, promoters, brokers, dealers, and/or agents for the "Performance Fund" and procured on its behalf the sum of $21,000 from plaintiff Kathleen Schaeffer for the purchase of a "Performance Fund III Series A Capital Appreciation Bond.
Paragraph 35: Defendants J. Fredal, Blair O'Connor and Fredal Associates, with the knowledge and cooperation of K. Fredal, received cash, commissions, override commissions, and other inducements to entice plaintiffs and others into purchasing the worthless bonds when defendants knew that the "Performance Fund" scheme was fraudulent, not "guaranteed" and not "insured".
Paragraph 37: Another participant in the Las Vegas meeting was Blair O'Connor, the Troy, Michigan insurance salesman. Plaintiffs believe that O'Connor received "override" commissions from the sale of the "The Performance Fund" to plaintiffs and his own cash inducements. As a result of their roles as salesman, participants and promoters, Blair O'Connor, J. Fredal and Fredal Associates received between 11% and 13% commission from the sale of the fund to plaintiffs.
Plaintiffs allege that all of the acts, misrepresentations and omissions outlined in the Complaint constitute common law fraud. See Second Amended Complaint ¶ 77. Plaintiffs also contend that they relied upon the statements, representations and omissions by Defendant to their detriment. See Second Amended Complaint, ¶ 78. Plaintiffs allege damage as a result of Defendants' actions. See Second Amended Complaint, ¶ 79. Plaintiffs contend that Defendant O'Connor was aware of the "Performance Fund" scheme as evidenced by his attendance at a Fund meeting. Plaintiffs contend that Defendant O'Connor, J. Fredal and Fredal Associates solicited over $200,000 in furtherance of the scheme and received between 11% and 13% in commission. It is Plaintiffs' contention that Defendant O'Connor knows the identity of the victims of the scheme, when the scheme occurred, where the scheme occurred, the nature of the scheme, the amounts at issue and the false statements made in furtherance of the scheme.
Rule 9(b) of the Federal Rules of Civil Procedure provides that a complaint alleging fraud must be stated with particularity. Coffey v. Foamex, 2 F.3d 157, 161 (6th Cir. 1993). The purpose of Rule 9(b) is to provide fair notice to the defendant so as to allow him to prepare an informed pleading responsive to the specific allegations of fraud. Advocacy Org. for Patients and Providers v. Auto Club Insurance Association, 176 F.3d 315, 322 (6th Cir. 1999). The Sixth Circuit reads 9(b) liberally, requiring a plaintiff at minimum, to allege the time, place and content of the alleged misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud." Michaels Bldg. C. v. Ameritrust Co. NA., 848 F.2d 674, 679 (6th Cir. 1988). The liberal reading of 9(b) stems from the influence of Fed.R.Civ.P. 8 which requires "a short and plain statement of the claim" and calls for "simple, concise and direct allegations." Id at 679. However, there is still the requirement that "allegations of fraudulent misrepresentation must be made with sufficient particularity and with sufficient factual basis to support an inference that they were knowingly made." Coffey, 2 F.3d at 162.
In In re Lilco Securities Litigation, 625 F. Supp. 1500, 1504 (E.D.N.Y. 1986), the court stated the following with respect to the requirements of Fed.R.Civ.P. 9(b):
[T]he Complaint adequately specified the statements it claimed were false or deceptively incomplete; it gave particulars as to the respect in which plaintiff contended the statements were fraudulent; it detailed the time and place at which the statements were made; and it identified the defendants charged with having made those statements, either directly or as controlling those statements, either directly or as controlling persons or alders and abettors. There can be no doubt that the Complaint gives each defendant fair notice of precisely what he is charged with.
In the case at bar, Plaintiffs' Complaint contains allegations which are sufficient to withstand a motion to dismiss. Defendant O'Connor states that Plaintiffs do not state the date or place of meetings. Plaintiffs' Complaint alleges that from October 7, 1996 through January 10, 1997, meetings and investments occurred. Paragraph 25 of the Complaint states that "[i]n October and November 1996, the Dobsons and Kukuk's daughter, Joyce Kraatz, met with J. Fredal to discuss investing monies." The phrase "[d]uring these meetings . . ." suggests that more than one meeting occurred. In Paragraphs 27, 30, 31, 32, 33 and 34, Plaintiffs give the months and years of alleged misrepresentations and the occurrence of the fraudulent scheme. Plaintiffs have sufficiently set forth a time period in which the alleged misrepresentations took place. Gassner v. Staler and Co., 671 F. Supp. 1187, 1193 (N.D. Ill. 1987). See Dunham v. Independence Bank of Chicago, 629 F. Supp. 983, 987 (N.D. Ill. 1986) ("range of dates" sufficient); Track Microcomputer Corp. v. Wearne Bros., 628 F. Supp. 1089, 1092 (N.D. Ill. 1985) ("general time period" sufficient); Onesti v. Thomson McKinnon Securities, Inc., 619 F. Supp. 1262, 1265 (N.D. Ill. 1985). In Gassner, the Plaintiffs contended that the alleged predicate acts occurred from June 1984 through at least December, 1984.
Defendant O'Connor also states that the alleged misrepresentations can be attributed to Defendant J. Fredal and that Plaintiffs have failed to allege that Defendant O'Connor made any misrepresentation whatsoever. Plaintiffs have set forth acts that can be attributed to Defendant O'Connor as an aider or abettor as stated in In re Lilco. In proving the prerequisite of two predicate acts, a plaintiff must show both a relationship between the predicates and the threat of continuing activity. H.J. Inc. v. Northwestern Bell Telephone, Co., 492 U.S. 229 (1989). The plaintiff may satisfy the relationship requirement if the predicate acts alleged "have the same or similar purposes, results, participants, victims, or methods of commission or otherwise are interrelated . . ." Id.
Plaintiffs have stated in Paragraph 37 of the Second Amended Complaint the basis for finding that Defendant O'Connor was involved in the Performance Fund Scheme. Paragraph 37 states that Blair O'Connor, the Troy, Michigan insurance salesman was a participant in a Las Vegas meeting regarding the Performance Fund. In addition, Plaintiffs state their belief that O'Connor received 'override' commissions from the sale of the "The Performance Fund" to Plaintiffs and his own cash inducements. As a result of their roles as salesmen, participants and promoters, Blair O'Connor, J. Fredal and Fredal Associates received between 11% and 13% commission from the sale of the fund to plaintiffs." Plaintiffs have alleged sufficient facts to show a relationship between Defendant Fredal who allegedly made a significant number of misrepresentations and Defendant O'Connor as at least an aider and abettor
Defendant O'Connor states that Plaintiffs' amended Complaint provides that Defendant O'Connor was a promoter and procured money from Plaintiffs. Defendant O'Connor contends that none of the alleged representations were made by him and Plaintiffs make no allegations that Defendant O'Connor had any contact with any of the Plaintiffs. It is Defendant O'Connor's position that the allegations are boilerplate and do not allege the time, place or content of specific representations.
In their Complaint, Plaintiffs contend that J. Fredal made representations to Plaintiffs Dobson and Sorge that their monies would be invested in the "Performance Fund", a Nevada based "fixed rate bond" paying a guaranteed 12% interest Plaintiffs contend that Defendant J. Fredal repeatedly expressed to them that the "Performance Fund" was "guaranteed" and that any investment was "insured." Plaintiffs allegedly believed, based upon Defendant J. Fredal's representations, that the "Performance Fund" was safe. Based upon the representations made by Defendant J. Fredal, Plaintiffs gave Defendant J. Fredal funds to be invested from October through December of 1996. Plaintiffs contend that Defendants induced Plaintiffs to invest in the "Performance Fund" when Defendants (including Defendant O'Connor) knew from the onset that the "Performance Fund" was a bogus, fraudulent enterprise operated in Nevada by individuals with lengthy criminal histories. (See Complaint, ¶ 35). The "Performance Fund's" purpose was to purchase written off debt paper and seek to collect upon by debt reaffirmation. The excess $2 million collected from the purchasers was used by Defendants (including O'Connor) to enrich themselves.
Plaintiffs further point to representations made beginning in August of 1996 through March 13, 1998, to Sorge, Kukuk, and Brad and Sharon Thompson, regarding the investing of funds obtained from the Plaintiffs into conservative bond investments. In support of their representations, Defendants sent statements to Plaintiffs on Fredal Associates letterhead stating maturity dates and interest calculations on the funds invested. Defendants also provided Plaintiffs with receipts contending that the funds acquired for investment purposes would be applied to a "Performance Fund" for 2 years at 12% and 10% and a 6 month note at 10%, a Marina Institutional Money Market Account and Money Market account. Plaintiffs contend that each of the statements and receipts provided were false, fictitious and fraudulent.
Based upon the foregoing, Plaintiffs have pled specific allegations of fraud sufficient to satisfy the mandates of Fed.R.Civ.P. 9(b). Plaintiffs point to specific time frames in which Defendants (most of the time J. Fredal) made representations regarding the investment of funds to induce Plaintiffs to entrust them with funds. Plaintiffs state that misrepresentations were made regarding the type of investment, whether the investments were insured and safe, and the expected return on the investments. Plaintiffs allege that the representations made by Defendants are supported by statements and receipts written by Defendants to Plaintiffs regarding the status of their investments. Plaintiffs note that Defendants' intentions were to defraud based upon the "Performance Fund's" purpose which was to purchase written off debt paper and seek to collect upon by debt reaffirmation. The excess $2 million collected from the purchasers was used by Plaintiffs to enrich themselves. Defendant O'Connor may not have personally made statements to Plaintiffs' but the allegations are clear that he is implicated as an aider or abettor in schemes which he knew were false. Plaintiffs' allegations satisfies the mandates of Fed.R.Civ.P 9(b).
2. Pleading a Rico Claim under 18 U.S.C. § 1962(b) .
Defendant contends that Plaintiffs' RICO count is defective because Plaintiffs failed to sufficiently plead the essential elements of a RICO violation under § 1962(b). Specifically, Defendant O'Connor states that Plaintiffs failed to allege that he engaged in a "pattern of racketeering activity," or that the enterprise affected interstate commerce. Defendant O'Connor states that Plaintiffs must show that he had control over an enterprise. Defendant O'Connor contends that Plaintiffs did not allege that he acquired or maintained an interest in, or control over any enterprise. Defendant O'Connor states that Plaintiffs, in the second amended Complaint, merely allege that an enterprise through a pattern of racketeering activity as defined by 18 U.S.C. § 1961(1) and 1961(5) by use of U.S. mail to send fictitious and fraudulent communications to Plaintiffs stating that such use occurred on more than two occasions, and was fraudulent in violation of 18 U.S.C. § 1341, 1343 and 1962. (See Proposed Amended Complaint, ¶ 12).
Defendant O'Connor states that in NCNB National Bank v. Tiller, 814 F.2d 931, 936 (4th Cir. 1987), the court held that "actual day-to-day involvement of management and operations of the borrower or the ability to compel the borrower to engage in unusual transactions is required for the purposes of showing that a lending institution had control over a borrower." Defendant O'Connor states that Plaintiffs cannot show that Defendant O'Connor owned stock in the Performance Funds, that Defendant O'Connor was employed by the performance Fund and had control over the day-today operations of the Performance Fund.
Defendant O'Connor further argues that the Sixth Circuit in American Eagle Credit Corp. v. Gaskins, 920 F.2d 352 (6th Cir. 1990) stated that closed ended conduct which lasts 12 months or less and the predicate acts are directed as a single victim or a few victims do not constitute a pattern of racketeering where there is no threat of future criminal conduct. Defendant O'Connor states that the Plaintiffs allege that four collective investments are sufficient predicate acts to constitute a pattern of racketeering activity as defined by 18 U.S.C. § 1962(b). Defendant O'Connor contends that Plaintiffs have not presented factual details of predicate acts making it impossible for Defendant O'Connor to ascertain whether a pattern of racketeering activity exists.
Plaintiffs contend that their case cannot be dismissed unless it appears "beyond a reasonable doubt that the plaintiff would not be able to recover under any set of facts that could be presented consistent with the allegations of the complaint." Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988). Plaintiffs stated that the purpose of the pleadings is to provide the parties with adequate notice of each party's claims and to allow cases to be decided on the merits after adequate development of facts. Plaintiffs allege injury under 18 U.S.C. § 1962(a) and (b).
Plaintiffs assert that mail fraud, wire fraud and extortion are included in the definition of racketeering activity. A plaintiff can prove mail and wire fraud by showing that there was: (1) a scheme to defraud; and (2) use of the mails, or of an interstate electronic communication in furtherance of the scheme. Id citing United States v. Brown, 147 F.3d 477, 483 (6th Cir. 1998). Plaintiffs stated that the allegations in the complaint state that the Defendant O'Connor deceived Plaintiffs into investing substantial sums in the "Performance Fund." Defendant O'Connor acquired or maintained, directly or indirectly, an interest in the enterprises through a pattern of racketeering activity through fictitious and fraudulent communications. Plaintiff asserts that the communications were wholly false. Defendant O'Connor asserts that the "Fund" was guaranteed and insured through Western Insurance. Defendant O'Connor alleges that the investment money would be used to purchase an investment but was actually used for personal use. Such misrepresentations were made over the phone and through the mail. Plaintiffs quote the Court's March 29, 2001 Memorandum Opinion and Order which stated that Defendant O'Connor has an interest in Fredal Associates' continued sales of the "Performance Funds" to ensure that Defendant O'Connor continued to receive commissions from the sales.
18 U.S.C. § 1962(b) states "[i]t shall be unlawfUl for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities which affect, interstate or foreign commerce." Under § 1962(b), Plaintiffs must show that they were harmed by reasons of Defendant's O'Connor acquisition or maintenance of control of an enterprise through a pattern of racketeering." Advocacy Org. for Patients Providers, 176 F.3d at 329. Plaintiff must allege a specific nexus between control of any enterprise and the alleged racketeering activity. Id. The Supreme Court has defined an "enterprise' under RICO as a group of persons associated together for a common purpose of engaging in a course of conduct. United States v. Turkette, 452 U.S. 576, 583 (1981).
In their second amended Complaint, Plaintiffs state that "Defendant O'Connor is an associate of J. Fredal who acted as a promoter in Michigan of a fraudulent venture described within the Complaint. Upon information and belies Blair O'Connor is a financial planner unregistered with the Securities and Exchange Commission operating in Troy, Michigan. Blair O'Connor is believed to be an insurance product salesman." (See Second Amended Complaint ¶ 2). Plaintiffs also contend that in December 1996, October 7, 1997 and January 10, 1997. . . Defendants J. Fredal, K. Fredal, Blair O'Connor and Fredal Associates acted as co-conspirators, promoters, brokers and/or agents for the "Performance Fund" wholly without authorization purchased a "Performance Fund" III Series A Capital Appreciation Bonds in the amounts of $136,261.65, $56,000, 10,000 and $21,000. (See Second Amended Complaint §§§§ 3, 4, 5, 6). Plaintiffs, on information and beliet state that Defendant O'Connor received 'override' commissions from the sales of the "Performance Fund" to Plaintiffs and his own cash inducement. As a result of their roles as salesman, participants and promoters, Blair O'Connor, J. Fredal and Fredal Associates received between 11% and 13% commission from the sale of the funds to Plaintiffs.
Plaintiffs have shown that Defendant O'Connor was associated with the "Performance Fund" by receiving commissions from the sale of The "Performance Fund", to the Plaintiffs. Defendant O'Connor makes much of the fact that he did not have any control over the day-to-day operations of the "Performance Fund", did not own stock in the "Performance Fund" and was not employed by the "Performance Fund". However, Defendant O'Connor's interest in Fredal Associates was its continued sales of the "Performance Fund" to Plaintiffs which ensured Defendant O'Connor commission from such sales. Based upon the continued sale of the "Performance Funds" by Defendant O'Connor, J. Fredal, K. Fredal and Fredal Associates, Plaintiffs were injured by continuing to entrust funds to Defendants to be invested. Plaintiff have plead a claim under 18 U.S.C. § 1962(b).
IV. CONCLUSION
IT IS ORDERED that Defendant's Motion to Dismiss ( Docket No. 34, filed April 27, 2001) is DENIED.